WASHINGTON (AP) — The House on Thursday approved sending $15 billion to states to buy and fix up foreclosed property.
The measure, passed 239-188, is part of a sweeping housing package Democrats are pushing to prevent more foreclosures and help homeowners and communities deal with the fallout from the mortgage meltdown.
The House was expected to vote later Thursday on a homeowner rescue bill that would let strapped homeowners refinance into government-backed mortgages.
The measures constitute the most significant action Congress has taken to date to address the housing crisis that's at the center of the nation's economic woes.
President Bush has threatened to veto both bills, contending they reward lenders and speculators.
FIND MORE STORIES IN: Congress | Bush | Republican | Freddie Mac | Fannie Mae | Federal Housing Administration | House Financial Services Committee | House-passed | Rep. Barney Frank | Rep. Maxine Waters
The centerpiece of the plan is a measure by Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, to have the Federal Housing Administration back up to $300 billion in new loans for debt-ridden homeowners. It would let the FHA relax its standards to guarantee fixed-rate loans for borrowers currently too financially strapped to qualify.
Those homeowners could refinance if their lenders agreed to take substantial losses on the original mortgages. Borrowers would have to show they could afford to make payments on the new loans. They would have to share with FHA at least half of their proceeds if they profited from selling or refinancing again.
The plan is projected to help roughly 500,000 borrowers at a cost of $2.7 billion over the next five years.
The House-passed bill by Rep. Maxine Waters, D-Calif., would send $15 billion in loans and grants to states to purchase, rehabilitate and resell or rent foreclosed properties. Proponents say it will prevent blight in neighborhoods plagued by abandoned, foreclosed homes.
But Republican critics say it rewards lenders and investors who own the property, and could act as an incentive for them to foreclose rather than find ways to help struggling borrowers stay in their homes.
Democrats, seeking Republican support for the broader housing package, were planning to attach a grab-bag of measures Bush has sought.
Those include legislation to overhaul the FHA, to more tightly regulate government-sponsored mortgage giants Fannie Mae and Freddie Mac, and authority for state and local housing finance agencies to use tax-exempt bonds to refinance distressed subprime mortgages.
The plan is also to include a housing tax credit of up to $7,500 for first-time home-buyers, to be paid back over 15 years. It would permanently raise the limit on the size of loans FHA could insure and Fannie Mae and Freddie Mac could buy to $729,750 in the highest-cost housing markets. Those caps are scheduled to fall at the end of the year, to $362,790 for the FHA, and to $417,000 for Fannie Mae and Freddie Mac.
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The bills are H.R. 5818 and H.R. H830.
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HOW ONE AID PLAN IS SET UP
An example of how Rep. Barney Frank's version of the plan would work:
• The situation. A borrower who financed the full cost of a $200,000 house in 2006 can't afford to make payments and has no refinancing options. Because home prices have fallen, the house is now worth $150,000.
• The lender. To get the loan off its books and prevent a costly foreclosure, the original lender or mortgage holder agrees to cut the mortgage principal to 85% of appraised value, or $127,500.
• The borrower. The Frank plan would permit the borrower to refinance into a private loan for 90% of appraised value, or $135,000. The new mortgage would be backed by the Federal Housing Administration. Each year, the borrower would pay a 1.5% FHA insurance fee.
• Subsequent sale. If a borrower eventually sells the home for a profit, the government would be entitled to a share. It would be at least 3% of the amount of the refinanced loan.
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